The company outlines it strategic plan moving forward: “We’re getting back to the fundamentals of selling auto parts,” says President and CEO Shane O’Kelly
Raleigh, N.C.—On the heels of its announcement earlier this month of the sale of Worldpac for approximately $1.5 billion, Advance Auto Parts, Inc. is executing its strategic plan to improve business performance with a focus on core retail improvements.
“It’s now been a year since I’ve been at Advance,” said Shane O’Kelly, president and chief executive officer, when speaking with Aftermarket Matters Weekly, “and I remain extremely energized by the quality of the people and the legitimacy of the opportunity. We’re looking to return Advance to a trajectory of growth and the decisive actions are a key step in making that happen.”
When O’Kelly took the helm, Advance’s stock was trading in the $50s, whereas at the time of interview earlier this month it was trading in the high $30s, where it remains as of Wednesday this week. “That’s reflective of the market saying it wants to see and understand more about the turnaround journey. We want the company to be more proscriptive around our specific actions and the potential results that can come from that.”
He emphasized that Advance is moving forward as a “blended box,” in which its stores will serve both DIYers and professional installer customers. “We can gain leverage by serving both types of customers. We’re getting back to the fundamentals of selling auto parts.”
O’Kelly said Advance is taking a “holistic” approach as to how it operates across all of its functions and has identified opportunities that it believes it can improve, including the closing of independent stores “that weren’t a good fit or weren’t economically working out” and supply chain consolidation with the closing of four distribution centers. “We had 38 distribution centers, and if you look at how we operate those distribution centers, you’ll see a combination of what was legacy Carquest and Advance DCs.
“We’re now going to go to a single set of large intake DCs across the company — around 14 — which will be supported by a new node called a market hub, which will number 60, followed by regular hubs further downstream and stores. Aligning that supply chain will help us to be more effective in getting parts to the customer and we’ll be able to do it more efficiently.”
Advance’s strategic plan is anchored on three pillars outlined below:
- Store operations
- Reduction in U.S. asset footprint — closing 523 Advance corporate stores, exiting 204 independent locations, and closing four distribution centers.
- Standardization of store operating model and improving labor productivity.
- Acceleration in pace of new store openings.
- Merchandising excellence
- Strategic sourcing to improve first costs and bring parts to market faster.
- Assortment management to enhance availability of parts.
- Pricing and promotions management to improve gross margin.
- Supply chain
- Consolidation of distribution centers to operate 13 large facilities by 2026.
- Opening of 60 market hub locations by mid-2027.
- Optimization of transportation routes and freight to lower costs and improve productivity.
O’Kelly stressed that he is a firm believer in making investments in Advance’s workforce. “We’re looking to our customers and frontline first in terms of how we can be effective. So we’ve put money into training, wages, and making sure our store-based team members are equipped to be successful with the customer.”
That requires examining the company’s cost structure, including what wages should be for starting roles, general managers, for example, bonus programs, and the number of sales team members and how they are compensated. “What is also important — beyond compensation — is training. How do you make sure people are trained to be effective and that they feel reinforcement that they can have a career? Turnover reduction becomes a key metric.”
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